Plagued by dwindling forex reserves, high inflation, a widening current account deficit, and a depreciating currency, Pakistan has now received a much-needed reprieve in the form of an $8-billion bailout from Saudi Arabia. The financial bailout comes after newly sworn-in Pakistani Prime Minister Shehbaz Sharif met with Crown Prince Mohammed Bin Salman (known popularly as MBS) on a recent visit to Saudi Arabia.
The financial package includes doubling of the oil financing facility, additional money either through deposits or Sukuks, and rolling over of the existing $4.2 billion facilities, The News reported.
Pakistan had proposed the doubling of the oil facility from $1.2 billion to $2.4 billion and Saudi Arabia agreed to the proposal. The two nations also agreed that the existing deposits of $3 billion would be rolled over for an extended period up to June 2023, according to an official. Sharif also visited UAE Crown Prince Muhammad Bin Zayed in Abu Dhabi before returning to Islamabad.
Pakistan-Saudi Arabia relations
The two Islamic nations, both with a Sunni majority, have had cordial relations since the formation of Pakistan in 1947. The two countries even signed a ‘treaty of friendship’ in 1951 and Saudi Arabia houses the largest number of Pakistani expatriates, numbering approximately one and a half million.
The two nations have also signed several agreements on security (military), culture, economy, political consultation, education, taxation, trade, religious affairs, press, air service, and investments. Pakistan’s exports to Saudi Arabia mainly comprise textile and food items (1.77% of its total exports) while its imports are mainly oil and related products.
During ex-PM Nawaz Sharif’s tenure from 2013 to 2018, Saudi Arabia provided a $7.5 billion package to Pakistan. Similarly, during Imran Khan’s tenure, the Gulf nation provided a package of $4.2 billion, including $3 billion in deposits and a $1.2-billion oil facility for one year and linked it with the IMF programme.
Souring of Pakistan-Saudi ties
On August 5, 2019, India abrogated Article 370, scrapping the special status accorded to Jammu and Kashmir, in a move vehemently opposed by Pakistan. Seeking international condemnation, then-Pakistan PM Imran Khan raised the issue in the UN General Assembly (UNGA), terming the move a violation of 11 resolutions of the UN Security Council, the Simla agreement, and India’s own Constitution.
“What is the world community going to do? Is it going to appease a market of 1.2 billion, or is it going to stand up for justice and humanity? India must lift the inhuman curfew in J&K and free all political prisoners,” Mr. Khan said in his 50-minute speech.
Pakistan did not gain much of an international response on the issue, while India has maintained that it is an ‘internal issue’ and that the conflict with Pakistan over J&K is a ‘bilateral issue’.
However, Turkish President Recep Tayyip Erdogan raised the J&K issue during the General Debate at the UNGA. “Turkey is in favour of solving this issue through dialogue, within the framework of the United Nations resolutions and especially in line with the expectations of the people of Kashmir,” he said.
He added that the Kashmir issue was still a burning issue, and that “steps taken following the abolition of the special status of Jammu-Kashmir further complicated the problem.”
His words were echoed by then-Malaysian PM Mahathir Mohammed, who alleged that India has “invaded and occupied” Jammu and Kashmir despite UN resolutions, urging New Delhi to solve the issue through dialogue with Islamabad.
Following this, the then-Pakistan Foreign Minister Shah Mehmood Qureshi demanded that Saudi Arabia convene an Organisation of Islamic Cooperation (OIC) meet to discuss the Kashmir dispute with India. He indicated that both Saudi Arabia and UAE were being ‘silent’ on the issue because they valued the growing economic ties with New Delhi more.
PM Khan alleged that the Gulf nations were ‘diluting’ the stand of the Islamic world on the Kashmir issue to gain from the large Indian energy requirement. India imports 17-18% of its oil requirement from Saudi Arabia – its second-largest source after Iraq.
Both Gulf nations were angered by Pakistan’s accusations and sought back loans given to Pakistan for a longer period and also rolled back the concessional sale of fuel on deferred payment. Alongside Pakistan’s growing closeness to Turkey, there was a deterioration in its ties with UAE and Saudi Arabia.
Saudi Arabia’s previous financial packages to Pakistan
Prior to the souring of ties, in February 2019, Pakistan and Saudi Arabia signed a slew of investment agreements worth $20 billion during MBS’ visit to Islamabad. Seven agreements, including MoUs in power, petrochemical and mining sectors, were inked. MBS also visited New Delhi and Beijing on his diplomatic trip to Asia.
Later, in 2021, Saudi Arabia provided $3 billion in deposits to the State Bank of Pakistan and the Saudi oil facility was operationalised from March 2022, providing Pakistan with $100 million to procure oil.
Amid Pakistan’s crushing debt crisis, China provided $1.5 billion in support to Pakistan to repay the $2-billion Saudi Arabian debt, as per Express Tribune. Pakistan repaid $1 billion after China transferred 10 billion Chinese Yuan under its 2011 bilateral Currency-Swap Agreement (CSA). Pakistan has been using CSA since 2011 to repay foreign debt and keep its gross foreign currency reserves at safe levels.
Recently, in January 2022, Saudi Arabia demanded that Pakistan pay back its entire $3-billion loan within a year with four percent interest on the loan each quarter, according to ANI reports. Following this demand, Imran Khan visited Beijing to seek a bailout. However, it is unclear whether China conceded to an urgent $3-billion loan.
Apart from financial aid, Saudi Arabia has also provided $200 million to finance the purchase of urea fertilizers, $80 million for the construction of the Neelum-Jhelum Hydropower Plant, $100 million to Internally Displaced Persons in the Malakand region, and humanitarian supplies for flood events.
